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Financial Services

Union Bank announces closed period as it readies to release H1 2020 result

Union Bank reported a profit after tax of N6 billion in Q1 2020.

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Union Bank 

Union Bank of Nigeria Plc has informed the Nigerian Stock Exchange (NSE) and other stakeholders about the commencement of its closed period, which will start today and last until 24 hours after the company’s H1 2020 unaudited financials are eventually made available to the public.

A public disclosure that was sent to the NSE also notified stakeholders that Union Bank’s board of directors are set to meet on Thursday, July 23rd, 2020 to deliberate on and approve the half-year financial statements.

Meanwhile, in view of the closed period, therefore, all directors and employees of the bank, as well as all other insiders, shall be prohibited from buying and selling the bank’s shares on the NSE. This is in compliance with the rule book of the Nigerian bourse.

The statement by Union Bank said:

“In compliance with the NSE Rule Book and the Amendments to the Listing Rules, Union Bank of Nigeria Plc (“the Bank”) hereby notifies The Nigerian Stock Exchange (“The Exchange”) and our esteemed stakeholders that the Board of Directors of Union Bank of Nigeria Plc (“the Board”) is scheduled to approve the Unaudited Financial Statements for the half-year period ended 30th June 2020 on Thursday, 23rd July 2020.

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“Consequently, there will be a closed period in respect of which no insider of Union Bank of Nigeria Plc may buy and or sell shares of the Bank from 8th July 2020 to twenty-four (24) hours after the filing of the Unaudited Financial Statements with The Exchange.”

Recall that Union Bank released its Q1 2020 financial statement back in April this year, reporting gross earnings of N43.9 billion for the period; a 16.5% increase from N37.6 billion reported in Q1 2019. In the same vein, profit after tax from continued operations also increased from N4.9 billion in Q1 2019 to N6 billion in Q1 2020.

Union Bank’s stock closed yesterday’s trading session on the Nigerian Stock Exchange at a share price of N5.45. Year to date, the stock has gained by roughly about 10%.

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Company Results

Sterling Bank reveals N215 billion sequestered by CBN as CRR Debits

Sterling Bank Plc, one of Nigeria’s tier 2 banks reported that the Central Bank of Nigeria’s CBN restricted about N215.5 billion of its customer deposits as of June 2020.

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Sterling Bank

Sterling Bank Plc, one of Nigeria’s tier 2 banks reported that the Central Bank of Nigeria’s CBN restricted about N215.5 billion of its customer deposits as of June 2020.

The bank reported this in its 2020 half-year interim results published on the website of the Nigerian Stock Exchange. According to the data, Sterling Bank’s confirmed the amount of its customer deposits now held by the CBN is about N215.5 billion and explained it “represent mandatory reserve deposits and are not available for use in the bank’s day-to-day operations” which can be interpreted as Cash Reserve Requirement “CRR”.

READ ALSO: CBN debits banks another N459.7 billion for failure to meet CRR target

Sterling Bank Data

  • Deposits from Customers – N915.3b (N892. 6billion)
  • Loans to customers – N615 billion (Dec 2019: N618.7 billion)
  • Sterling Bank CRR – N215.5 billion (Dec 2019: N122.1 billion)
  • Sterling Bank got debited N93 billion so far this year
  • This breaks down to about N71.1 billion and N21.9 billion debited in the first and second quarters respectively.
  • CRR as a percentage of deposits as at June 2020 – 23.5%

READ MORE: As AMCON nears possible ‘liquidation’, what should we expect?

CBN CRR Policy

The central bank of Nigeria increased its cash reserve requirement (CRR) to 27.5% from 22.5% at the monetary policy committee meeting held on January 23rd to 24th. The CRR is the amount the CBN debits from banks accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of banks. The amount is not available for banks to use.

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Sterling Bank Results

The Bank also published its 2020 second-quarter results showing net interest income was up 16% to N18 billion.

  • Pre-tax profits also rose 24% YoY to N3.3 billion despite the Covid-19 pandemic induced economic lockdowns.
  • Despite the improved profits, the bank did report a spike in its provisions for impairments jumping almost 3 folds to N5.3 billion.
  • To put this into context, Sterling Bank suffered an impairment of N5.8 billion in the whole of 2019.
  • Sterling Bank’s cost to income ratio remains high at about 86%.

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FEATURED

3 major ways COVID-19 will affect Banks’ 2020 profits

The oil price crash coupled with border closures have worsened Nigeria’s FX deficit.

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Q1 2020, Disrupting Nigerian banks, Evolution of Nigerian banks in 59-years , GTB, UBA, Zenith, Access Banks’ salary advance loans, Can a company operate without a website in 2019? , Banks refund N3.09 billion to customers over claims on excess charges, fraud, others  , Bank CEOs applaud NCC’s decision to suspend USSD charges, GTBank, Zenith, Access, FBN, 10 others spend over N8 billion on CSR, Banking: Evolving trends in the bankers’ market, GTBank, Access, FBNH, Standard Chartered wrestle over women entrepreneurs , GTBank, Access Bank, Zenith, FBN, 16 others disburse CBN’s N610.4 billion to farmers , Credit to government declines, as Credit to private sector hits N25.8 trillion, Banking sector NPLs down, loans up, Non-Performing Loans in Agriculture, construction, others rose to N143.76 billion, Asset seizure: Banks begins recovery of N6.125 trillion borrowed to the oil sector, Customer Experience: GTB, FCMB, Citibank, others emerge best banks in 2019, Nigeria’s top 5 banks spent more than N40 billion on adverts in 2019, Nigerian banks face risky future over low oil prices, coronavirus, Testing the financial strength of Nigerian banks

The last has definitely not been heard of the economic impact of COVID-19, despite the seeming normalcy that is beginning to return to the economy post lockdown. The Nigerian banking industry, which has consistently been the most profitable single sector traded on the NSE and accounts for over 50% of investors’ stock traded daily, may be set for hard times ahead notwithstanding their 2020 Q1 profits and their best efforts to adapt to the new normal.

From the shutting down of the economy for months to the closing of borders and business offices of banks, here are the 3 major ways in which COVID-19 will affect the 2020 profits of Nigeria’s Lenders:

  • Increase in impairment and bad loans

Impairments are an additional financial cost to the lender resulting from the reduction in the creditworthiness of the borrower while bad loans are literally loans that have gone… Bad (you guessed that). Whereas bad loans are to be written off completely by the lender, impairments are deductions that should reflect in financials of the lender pending when the loans become active.

In the wake of the pandemic, the CBN took proactive measures to ensure that Banks are protected from ruinous impairments by approving the request of the Lenders to restructure loans in their books allowing more time for debtors to pay.

Notwithstanding this initiative, loans (especially in the retail space) would most likely end up being written off as unemployment rates soar and the economy slowly recovers from the effects of the pandemic. Education, aviation, and the oil and gas sector do not seem on the path of recovery yet, and their delay would most likely cost lenders with sizable exposures in their respective industries.

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  • FX scarcity and Liquidity squeeze

These two sides of the same coin are causing painful gut-wrenching groans to be heard in the Banking sector, especially amongst lower-tiered Banks.

The oil price crash coupled with border closures have worsened Nigeria’s FX deficit and caused the CBN to employ unconventional means and policies to stabilize the Naira, even after a long-awaited devaluation.

Banks who are unable to meet the FX needs of their customers rush “cap in hand” to the CBN to get FX intervention for their corporate customers for whom the exorbitant parallel market rate is not an option. Instead of getting their requests met, their positions are debited and added to their CRR forcing them to reduce their FX demands and leave their customers dissatisfied. While this may lead to loss of deposit from these customers taking their businesses elsewhere, the major issue the Banks have with this discretionary CRR, is the foregone earnings that their extra CRR would have earned in the money market or through commercial loans.

Over N2trillion has been arbitrarily debited from Nigerian lenders since April in tranches of N1.4trillion, N300billion and N459.7billion causing some banks to have CRR in excess of the 27.5% agreed upon by the CBN Monetary Policy Committee in January 0f 2020.

The depreciating Naira is also inimical to Banks with FX denominated bonds, and is expected to impact their bottom line.

  • The macro economy and unfair competition

The relationship between Banks and the economy is complex. They are the gauge through which the pulse of the economy is felt, and the channel through which its life force can be restored. At no time is this complex relationship more evident than during severe economic strain, such as this pandemic. It is at this time that the Banks experience unfair competition from their regulators who are forced to provide direct, and cheaper funding to the economy sacrificing short term profitability of the Banks for long term sustainability of the economy.

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In the wake of the pandemic, the CBN has provided series of intervention funds, ranging from the N50b household support, to the Agric fund, CIFI and MSME support funds at single interest rates, lower than the commercial Banks can afford.

Although the commercial Banks are listed as PFI (Performing Financial Institutions) for most of these funds, the commissions they stand to earn are in no way comparable to what it would have been had they been the direct lenders at commercial rates. This arrangement would definitely impact their creation of new risk assets and the accompanying income that would have found its way to their annual profit.

It’s not all gloom though, Bankers who chose to speak off-record claimed that the lockdown played a key role in increasing enrolments on their online platforms and the timing of the nationwide cashless policy was a “masterstroke” in ensuring that customers bought into e-channel transactions on which the Banks would earn fees and commissions. They claim that the pandemic also offered some Banks a rare opportunity to prune their operations cost without alarming their customers, as they were able to shut down not too profitable branches in some locations and redeploy their staff accordingly.

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A top Treasury official in one of the new generations Banks who sought anonymity said that Banks who have earned income in FX prior to the pandemic would enjoy revaluation profit, but was quick to add that this little margin would not offset their loss of income from Letters of credit not done due to border closures, nor will it write off the rate decline in risk-free investments of Banks buying Government Bonds.

With increased cost for operational branches due to adaptability to COVID-19 protocols amongst other things, it remains to be seen how Nigerian Banks would fare in this remarkable year. Their H1 results should give more insight.

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Financial Services

FBN Holdings announces N25 billion capital injection into FirstBank

The fresh equity capital injection is coming on the heels of FBN Holdings’ recent divestment from FBN Insurance.

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FBN holdings plc, First Bank

N25 billion worth of equity capital has been injected into First Bank of Nigeria Limited by its parent company, FBN Holdings Plc. The move is coming on the heels of FBN Holdings’ recent divestment from FBN Insurance Ltd.

A statement signed by FBN Holdings’ Company Secretary, Seye Kosoko, as seen on the Nigerian Stock Exchange’s website, noted that the N25 billion is part of the net proceeds from the recent divestment from  FBN Insurance Limited.

READ MORE: Nigeria’s tier-1 banks earn N18.4 billion from account maintenance charges in Q1 2020

Following this N25 billion capital injection, First Bank of Nigeria Limited’s Capital Adequacy Ratio (CAR) has increased to 16.53%. This is before capitalising year to date profit for half-year 2020.

More details: While commenting on this development, FBN Holdings’ Chief Financial Officer, Oyewale Ariyibi, said that the “divestment has unlocked significant value embedded in the former subsidiary which is being leveraged to strengthen the core baning business for which the Group is renowned.”

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The company also explained that the overriding objective of these recent moves is to “optimise capital across the Group to drive business growth, enhance efficiency, and improve overall shareholders’ value.”

READ MORE: More banks, insurance firms declare closed periods ahead of H1 results release

The backstory: Back in April this year, FBN Holdings Plc first disclosed ongoing talks with Sanlam Emerging Markets (Proprietary) Ltd over a possible sell-off of its 65% stake in FBN Insurance to the South African firm. Fast-forward to early June, FBN Holdings again informed stakeholders that it had completed the divestment process. All the while, no mention was made about the value of the transaction until now.

Note that FBN Holdings Plc reported a profit after tax of N49.5 billion for the half-year period ended June 30th, 2020. This represents a 56.3% increase when compared with N31.6 billion reported in H1 2019. The company’s Chief Executive Officer, UK Eke, recently commented on performance, noting that “the H1 2020 financial results are impressive and reconfirm our consistent focus on enhanced shareholder value.”

READ MORE: Here’s how much banks spent on advertising & marketing in Q1 2020

FBN Holdings’ share price on the Nigerian Stock Exchange is currently trading at N5.05. The company has a market capitalisation of about N181.3 billion, according to information gleaned from Bloomberg.

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